Salient features of Republic Act 10667: Philippine Competition Act

On the 21st day of July 2015, the industry rejoice with the passage of the Philippine Competition Act. It is one of the policies defined to be important in the Philippines E-Commerce Roadmap as the country takes steps in enacting measures to start resolving our Internet connectivity challenges, among others.

Reading through the salient features, my only worry though is this law can be abused, by current or traditional players, to impede innovation as new players may come out with game-changing ideas that will rock the market they are in. Offer products and services at a price designed for a new or current business model. Which, by this innovation, may also affect existing players comfortable on how they do things and the revenue they are getting.

Though the law in the last 3 paragraphs of Section 15 answered this worry by stating that:

The law can’t be interpreted as a prohibition on having a dominant position in a relevant market or on acquiring, maintaining, and increasing market share through legitimate means that do not substantially prevent, restrict, or lessen competition.

Any conduct which contributes to improving production or distribution of goods or services within the relevant market, or promoting technical, and economic progress while allowing consumers a fair share of the resulting benefit may not necessarily be considered an abuse of dominant position.

The Philippine Competition Commission will pursue measures that will promote fair competition.

I have started with the above introduction rather than putting that at the end so we should be reminded on the need to be vigilant on the implementation of this law as it can also be used by those who wants to stifle innovation – if only to cause inconvenience to players taking off in what they have started.

The law’s salient features, based on my appreciation of its provisions, include:

1. Creation of the quasi-judicial body, the Philippine Competition Commission (PCC), that will implement the National Competition Policy and attain the objectives of the law. It shall be composed of a chairperson and four (4) commissioners serving a term of 7 years without reappointment. Apart from teaching, they can not be engage in any other type of work or business. Including running for public office and serve as counsel appearing in any hearings of the PCC for 2 years (their spouses and relatives too). (Section 5 to 7)

2. The PCA will review proposed mergers and acquisitions. They can prohibit those that will substantially prevent, restrict, lessen competition in the relevant market. (Section 12 b)

3. Upon finding and based on substantial evidence, entities that have entered into anti-competitive agreement or has abused its dominant position, the PCA can stop or redress the same through issuance of injunctions, requirement of divestment, disgorgement of excess profit, etc. (Section 12 d)

4. The Department of Justice Office of Competition (DOJ-OFC) shall only conduct preliminary investigation and undertake all criminal offenses arising under this act and similar laws. (Section 13)

5. The law prohibits the following acts:

Anti-Competitive Agreements

Agreements between or among competitors are per prohibited (Section 14a)

1) Restricting competition as to price, or components, or other terms of trade;2) Fixing price at an auction or any of form of bidding, including over-bidding, bid suppression, bid rotation and market allocation, bid manipulation

The PCC shall develop a Leniency Program to be granted to any entity in the form of immunity from suit or reduction of any fine which would other be imposed on a participant in an anti-competitive agreement as provided in Section 14 (a) and (b) in exchange for the voluntary disclosure of information which satisfies criteria and requirements set by the PCC and DOJ-OFC.An entity charged in a criminal proceeding pursuant to Section 14 (a) and (b) of this law may enter a plea of Nolo Contendere in which he does not accept or deny responsibility for the charges but agrees to accept punishment as if he pleaded guilty. (Section 36)Administrative penalties in relation to violation to this law are: (Section 29 a to d)

Administrative fines found under Section 14, 15, 17, and 20 includes:
First offense: Up to 100 million

Second offense: 100 million to 250 million

Failure to comply with an order of the PCC – 50 thousand to 2 million.

Supply of incorrect or misleading information – 1 million.

Other violations – 50 thousand to 2 million pesos.

Criminal penalties entering into any anti-competitive agreements as covered by Section 14 (a) and (b) be penalized by: (Section 3o)

Imprisonment from 2 months to 7 years.

Fine of not less than 50 million to 250 million.

Agreements between or among competitors which have the object or effect of substantially preventing, restricting, or lessening competition shall be prohibited (Section 14b)

1) Setting, limiting, controlling production, markets, technical development, investment;2) Dividing or sharing the market, whether by volume of sales or purchases, territory, type of goods or services, buyers or sellers, or any other means.

The PCC shall develop a Leniency Program to be granted to any entity in the form of immunity from suit or reduction of any fine which would other be imposed on a participant in an anti-competitive agreement as provided in Section 14 (a) and (b) in exchange for the voluntary disclosure of information which satisfies criteria and requirements set by the PCC and DOJ-OFC.An entity charged in a criminal proceeding pursuant to Section 14 (a) and (b) of this law may enter a plea of Nolo Contendere in which he does not accept or deny responsibility for the charges but agrees to accept punishment as if he pleaded guilty. (Section 36)Administrative penalties in relation to violation to this law are: (Section 29 a to d)

Administrative fines found under Section 14, 15, 17, and 20 includes:

First offense: Up to 100 million

Second offense: 100 million to 250 million

Failure to comply with an order of the PCC – 50 thousand to 2 million.

Supply of incorrect or misleading information – 1 million.

Other violations – 50 thousand to 2 million pesos.

Criminal penalties entering into any anti-competitive agreements as covered by Section 14 (a) and (b) be penalized by: (Section 3o)

Imprisonment from 2 months to 7 years.

Fine of not less than 50 million to 250 million.

Abuse of dominant position

Prohibit one or more entities abuse their dominant position by engaging in a conduct that would substantially prevent, restrict, or lessen competition:

Selling goods or services below cost with the object of driving competition out of the market;It shall consider whether the entity or entities involved have no such object and the price established was in good faith to meet or compete with the lower price of a competitor in the same marketing selling comparable products. (Section 15a)Imposing barriers to entry or committing acts that prevent competitors growing within the market in an anti-competitive manner. Except those that develop in the market as a result of or arising from a superior product or process, business acumen, legal rights or laws. (Section 15b)Making a transaction subject to acceptance of others which by nature or according to commercial usage, have no connection with the transaction. (Section 15c)

Setting prices or conditions that discriminate unreasonably between customers or sellers of the same goods or services. (Section 15d)

Permissible price differentials include:

1)socialized pricing for the less fortunate sector of the economy;

2) reflect differences in cost of manufacture, sale, delivery resulting from differing methods, technical conditions, quantities in which the goods or services are sold or delivered to the buyers;

3) Response to competitive price of payments, services, or changes in the facilities furnished by a competitor.

4) Price changes in response to changing market condition, marketability of goods and services, or volume

Imposing restriction on the lease or contract for sale of goods or services, concerning where, to whom, or in what for goods ad services may be sold or traded, such as fixing prices, giving preferential discounts or rebate upon such price, imposing conditions not to deal with competing entities, where the object or effect is restrictions is to prevent, restrict or lessen competition substantially. (section 15 e)

Making supply of particular goods or services dependent upon the purchase of other goods or services from the supplier which have no direct connection with the main goods or services supplied. (Section 15f)

Direct or indirectly imposing unfairly low purchase price for the goods or services of marginalized agricultural producers, fisher folk, micro and small medium enterprises (MSME), and other marginalized service providers and producers.; (Section 15 g)

Directly or indirectly imposing unfair purchase or selling price on their competitors, customers, suppliers, customers. Provided that prices that develop in the market as a result of or due to a superior product or process, business acumen, or legal rights or laws that shall not be considered as unfair prices. (section 15 h)

Administrative penalties in relation to violation to this law are: (Section 29 a to d)Administrative fines found under Section 14, 15, 17, and 20 includes:First offense: Up to 100 million

Second offense: 100 million to 250 million

Failure to comply with an order of the PCC – 50 thousand to 2 million.

Supply of incorrect or misleading information – 1 million.

Other violations – 50 thousand to 2 million pesos.

6. In the prohibited sections section of the law though, it defined several activities that are not unlawful or violation of this Act including:

Nothing in this Act shall prohibit or render unlawful the following:

1) Permissible franchising, licensing, exclusive merchandising or distributor agreements such as those which give each party the right to unilaterally terminate the agreement.(Section 15 e1)

Limiting production, markets or technical development to the prejudice of consumers, provided limitations that develop in the market as a result of or due to a superior product or process, business acumen or legal rights or law. (Section 15 i)

7. The PCC has the power to review mergers and acquisitions based on factors deemed relevant. (Section 16)

8. Parties to merger or acquisition agreement where the value of the transaction exceed 1 billion pesos are prohibited from consummating their agreement until 30 days after providing notification to the PCC (subject to the PCC promulgated criteria and processes)

Should the PCC ask for info, the agreement may not be consummated for an additional 60 days. Total period for review shall not exceed 90 days from initial notification by the parties. When no decision is released after the said period, the agreements shall be considered as approved.

All documents submitted to the PCC by parties shall be subject to confidentiality rule except when consent is provided by concerned parties or mandatorily required to be disclosed by law or court order or government regulatory agency.

Note of the following penalties as well:

a) Parties who violate this shall have their agreement be considered as void and be required to pay an administrative fines of 1% to 5% of the transaction value. (Section 17)

b) Administrative penalties in relation to violation to this law are: (Section 29 a to d)

Administrative fines found under Section 14, 15, 17, and 20 includes:

First offense: Up to 100 milion

Second offense: 100 million to 250 million

Failure to comply with an order of the PCC – 50 thousand to 2 million.

Supply of incorrect or misleading information – 1 million.

Other violations – 50 thousand to 2 million pesos.

c) Violation of confidentiality of information has a fine of 1 million to 5 million pesos. (Section 34)

9. If the agreements are deemed to be prohibited, the PCC can prohibit the agreement from being consummated. Although it can still proceed provided it will heed the changes or until the parties involved enter into legally enforceable agreements specified by the PCC. (Section 18)

10. In reference to Section 17, the PCC may adopt and publish regulations relating to transaction value threshold, information to be supplied for notified mergers and acquisitions, exemptions from notification requirements, and other rules (Section 19)

11. Mergers or acquisitions that will substantially prevent, restrict, or lessen competition in the relevant market or in the market for good and services as determined by the PCC may be prohibited. (Section 20)

12. In reference to section 20, exemptions can be applied when parties are able to establish either the following:

Gains in efficiencies are greater than the effects on any limitation on competition that result or likely result from the merger or acquisition.

A party to the merger is faced with actual imminent or financial failure and the agreement represents the least anti-competitive agreement among the known alternative uses for the failing entity’s assets.

An entity will not be prohibited from continuing to own and hold the stock or share capital or assets of another corporation which is acquired prior to approval of this law. Or in acquiring or maintaining market share in a relevant market through such means without violating this law. However, these acquisitions should only be for investment and not used for voting or exercising control, not an attempt to prevent, restrict, lessen competition in the relevant market. (Section 21)

13. In determining control of any entity the PCC may consider the following: (Section 25)

Control is presumed to exist when parents own directly or through subsidiaries more than 1/2 of the voting power of an entity (except it can demonstrate that the ownership does not constitute control).

Control exist when an entity owns one half (1/2) or less of the voting power of another entity when:

There is power of more than 1/2 of the voting rights by virtue of an agreement with investors.

Power to direct or govern the financial and operating policies of an entity under a statute or agreement.

Power to appoint or remove majority of the members of the board of directors or equivalent governing body.

Power to cast the majority votes at meetings of the board of directors or equivalent governing body.

There exist ownership over or right to use all or significant part of the assets of the entity.

There exist rights or contracts which confer decisive influence on the decisions of the entity.

14. The PCC shall consider the following when determining market dominant position (section 27):

Share of entity in relevant market and able fix prices unilaterally or restrict supply.

Existence of barriers to entry and the elements which could foreseeably alter both said barriers and the supply from competitors.

Existence and power of its competitors.

Possibility of access by its competitors or entities to its source of inputs.

16. The PCC will issue non-adversarial remedies before the institution of administrative, civil, or criminal action including: binding ruling, show cause order, consent order. Any documents and information provided in these non-adversarial remedies cannot be made admissible as evidence in court to the party providing such. (Section 37)

17. The PCC may summarily punish for contempt by imprisonment not exceeding 30 days or by a fine not exceeding 100 thousand pesos on any entity guilty of misconduct in the presence of the PCC in its vicinity as to seriously interrupt any hearing, session, or proceedings before it. This includes not complying to summons, subpoenas, refusal to be sworn as a witness or answer questions or to furnish information when lawfully required to do so. (Section 38)

18. Decisions can be appealable to the Court of Appeals. The PCC shall be included as a party respondent to the case. (Section 39)

19. If the violation involves trade and movement of basic necessities and prime commodities as defined by RA 7581, the fines imposed can be tripled. (Section 41)

20. The PCC (its officers, personnel, agents) shall not be subject to any action or claim or demand in connection with any act done or omitted by them in the performance of their duties and exercise of their powers except for those actions and omissions done in evident bad faith or gross negligence (Section 42 and 43)

21. The Regional Trial Court shall have original and exclusive jurisdiction for all cases involving this law. (Section 44)

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